Q4 2025 Brown-Forman Corp Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to Brown Forman Corporation fourth quarter and fiscal year 'twenty 25 earnings call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
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Speaker Change: You didn't hear an automated message of bites in your hand, it's right to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to turn the conference over just two P. M Vice President director of Investor Relations. Please go ahead.
Yet.
Speaker Change: Thank you and good morning, everyone I would like to thank each of you for joining us today for Brown <unk> fourth quarter and fiscal year 2025 earnings call. Joining me today are Lawson Whiting, President and Chief Executive Officer, and Leo Cunningham Executive Vice President and Chief Financial Officer.
Speaker Change: This morning's conference call contains forward looking statements based on our current expectations.
Risks and uncertainties may cause actual results to differ materially from those anticipated or projected in these statements.
Speaker Change: These are the factors that will determine future results are beyond the company's ability to control or predict you should not place undue reliance on any forward looking statements and except as required by law. The company undertakes no obligation to update any of these statements whether due to new information future events or otherwise. This morning, we issued a press release.
Speaker Change: <unk> containing our results for the fourth quarter and fiscal year 2025. In addition to posting presentation materials that Lawson and Leann will walk through momentarily.
Speaker Change: Both the release and the presentation can be found on our website under the section titled investors events and presentations in the press release, we have listed a number of the risk factors you should consider in conjunction with our forward looking statements. Other significant risk factors are described in our Form 10-K and Form 10-Q reports filed with the securities and exchange can.
Speaker Change: Mission during this call we will be discussing certain non-GAAP financial measures. These measures a reconciliation to the most directly comparable GAAP financial measures and the reasons management believes they provide useful information to investors regarding the company's financial condition and results of operations are contained in the press release and Investor.
Speaker Change: Asia.
Lachlan: With that I would like to turn the call over to Lachlan.
Lachlan: Thank you Sue and good morning, everyone. Thank you for joining us today as we share our fourth quarter and fiscal year 2025 results throughout fiscal 2025, Brown Forman navigated the extremely challenging and uncertain operating environment by remaining focused on the long term leveraging our strengths and executing our business strategies with a focus on them.
Lachlan: Proving our route to consumer in several markets evolving our workforce to simplify and streamline our organization, allowing us to become more agile efficient and growing our portfolio of brands through sponsorships media campaigns and innovation.
Lachlan: The fiscal year unfolded largely as we expected. This reflects the continued path to normalization following a significant multi year disruption related to our supply chain two plus years of exceptionally high demand and the impact of higher inflation and interest rates on the consumer and trade over the last two years for context in fiscal 2025.
Lachlan: Our shipments closely matched our depletions for the first time in six years, our reported net sales decreased 5% in fiscal 'twenty five while organic net sales grew 1% after adjusting for the divestitures of Atlanta, and Sonoma Cutrer in the prior fiscal year, the negative effect of foreign exchange and the business model changed trajectory in those country cocktails.
Lachlan: Putting our fiscal 'twenty five results into the longer term view, our five year organic net sales compound annual growth rate was 6% reflective of our historic trends now let me share some perspectives on the fiscal 2025 results through our integrated business strategy I'll start with the performance of our portfolio and provide a few updates on our people.
Lachlan: Then leann, who will share more about our geographic performance and our investments along with other financial highlights and our fiscal 'twenty six outlook from a brand perspective, Woodford reserve was the largest driver of organic net sales growth and if you look at the Nielsen takeaway trends for the top 20 spirits brands by value for the 52 weeks ending in April Woodford Reserve.
Lachlan: <unk> was one of only three brands growing this reflects the strength of Woodford reserve, but also the exceptionally challenging environment. Our industry is navigating right now an increase in used barrel sales was the second largest contributor to organic net sales in fiscal 'twenty five followed by growth from new mix and Jack Daniel's, Tennessee Whiskey Woodford reserve delivered organic.
Lachlan: Net sales growth of 8% driven by higher volume as well as positive price mix with Woodford Reserve distiller select once again, leading the growth Woodford Reserve is also being discovered internationally with very strong performance in markets, such as Japan, and Turkey <unk> as we continue to position. This brand for global growth last month, the Kentucky Derby was held in our hometown of.
Lachlan: Louisville, and Woodford Reserve was once again, the presenting sponsor of the 150 <unk> run for the Roses was the most watched Kentucky Derby since 1989 with over 22 million household viewers generating more than 4 billion earned media impressions for the brand. This event creates numerous opportunities for collaborations across spirits sports and fast.
Lachlan: Enabling Woodford reserve to engage with current consumers and make new fans of the brand innovation in premium innovation also contributed to the brand's growth with the success of Woodford Reserve's largest product launch double double oaked, along with continued double digit growth of Woodford reserve double X. These craft and luxury expressions reflect our strategic approach.
Lachlan: Innovation, which enable us to capitalize on growth opportunities in the U S. Whiskey category, New mix continued its impressive growth in fiscal 'twenty five leveraging innovation to capitalize on consumer trends of flavor and convenience. The brand had another year of double digit organic net sales growth, surpassing 11 million nine liter cases, and continuing to gain mark.
Lachlan: Sure and Mexico. In addition, I'm excited to share that new mix will launch two flavors, new mixed Paloma and new mix cant redo RTD in key U S. States later this summer with 58% of the U S. Hispanic population originating from Mexico. This launch offers consumers the opportunity to purchase a brand that is currently only available in Mexico, who are flex.
Lachlan: The authenticity tradition, and culinary richness of the country in fiscal 2025 organic net sales for Jack Daniel's, Tennessee Whiskey increased 1% as we've shared throughout this year, we're continuing to engage a new generation of legal drinking age consumers, while remaining intently focused on retaining our core consumers through our Mclaren formula one in mute.
Lachlan: Sponsorships and evolved on premise strategy and our new media campaign Jacks connection to Formula One and music are on full display in Jack's garage, which is a bold brand platform that unites race and whiskey fans through the power of music. The momentum of this experience continues to build with the most recent jacks garage in Miami, resulting in more social.
Lachlan: <unk> then all of the U S. Jack's garage events held in calendar 2024 combined.
Lachlan: Also raising awareness the first members of the jackpot back the team of Jack Daniels brand Ambassadors are now in place in key cities, such as New York, San Francisco and Los Angeles. This team is focused on growing our influence in the on premise channel through relationship building targeted education and brand advocacy I'm also proud to share that our new global campaign project.
Lachlan: Entitled That's what makes Jack Jack launched a few weeks ago in markets around the World. This campaign is bold iconix and unmistakably Jack it emphasizes the enduring craftsmanship and authenticity that distinguishes Jack Daniels from all other whiskeys stemming from our roots in Lynchburg, Tennessee, our signature charcoal mellowing process and the <unk>.
Lachlan: Wavering standards set by Mr. Jack himself reinforcing Jack Daniel status is a renowned and iconic brands. We believe the creative work, we will strengthen our position as a symbol of independents for current consumers and a new generation innovation also elevates Jack Daniel's relevance to existing consumers, while extending the brand's appeal to new consumers and occasions as.
Speaker Change: Ernst by the growth and success of the launches objecting, Tennessee Honey in 2011, Tennessee fire in 2014, and Jack Daniel's, Tennessee, Apple in 2019 today I'm excited to announce the launch of Jack Daniel's, Tennessee, Blackberry later this summer Blackberry as a globally recognized well established flavor trend and naturally complements the flavor of Jack.
Speaker Change: Daniel's, Tennessee, Whiskey and consumer testing, Jack Daniel's, Tennessee, Blackberry had high consumer appeal resonating with a broad audience, we've been strategic and purposeful with our innovation using consumer insights and trends to give consumers the opportunity to explore and discover within the Jack Daniels family I look forward to sharing more about the launch of this exciting new innovation.
Speaker Change: In the months ahead before moving to our people I will share some comments on a few other brands that had an impact on the company's topline performance diplomatically delivered very strong double digit organic net sales growth led by France, and Germany, along with the travel retail channel within the Super premium and above price tier diplomatic who is the world's third largest run by value globally.
Lachlan: <unk> sold over 100 countries and is known for its rich heritage and rulemaking tradition in fiscal 'twenty five we benefited from having a full year of growth from this brand and we continue to expect diplomat are go to be a meaningful growth contributor over the long term organic net sales for <unk> grew 1% with growth from Spain, Germany, and France, partially.
Lachlan: Offset by a decline in Italy, the brand's largest market as we transition to our own distribution in the fourth quarter, we recognized a $47 million noncash impairment charge for the gymboree brand name and reduced <unk> contingent consideration liability by $43 million, the impairment and liability reduction reflect a decline in our financial.
Lachlan: Forecast assumptions due to the more challenging macroeconomic environment in Europe, where the brand has a strong presence while the brand had a slower start than we planned we continue to expect that Jean Marie will contribute long term growth to our portfolio of brands.
Lachlan: Bell and our Tequila brands, partially offset our organic net sales growth in fiscal 'twenty five as we shared a few weeks ago Brown Forman in core Bell Champagne sellers will end, our sales marketing and distribution relationship at the end of the month. We appreciate the years of partnership with core Bell as well as the Brown Forman employees, who played a role in building corbell onto the respected and well loved brand.
Lachlan: It is today to our tequila portfolio organic net sales <unk> declined double digits as the environment for the Tequila category in the U S remained competitive hand, Mexico's economy continued to face a challenging macro environment. So their performance improved sequentially each quarter, we believe consumers desire brands with heritage authenticity.
Lachlan: City and craftsmanship. So we remain focused on sharing and celebrating <unk> 155 year history, including its heritage as the world's first <unk>, which is the fastest growing expression within the Tequila category. We also continued to innovate with the successful launch of Herradura Christophe in Mexico, which builds upon the accelerating crystal Lino trend El Humidor has also.
Lachlan: Launched a crystal Lino expression in the U S. Bill Heyman, our crystal lean it was priced above the parent brand and is the first expression within the family of brands to be bottle, then its new premium packaging further supporting the brands premium amortization journey IW ESR projects. The tequila category will reach almost $20 billion in retail value in the next five years with almost half of the growth.
Speaker Change: Coming from outside the U S and Mexico, we continue to ensure that <unk> and <unk> are well positioned to capitalize on the growth before turning the call over to Leann I want to take a moment to provide an update on our people and fiscal 'twenty, five we announced and implemented a number of strategic initiatives, which included a workforce reduction in cooperage closing collectively these <unk>.
Speaker Change: <unk> should deliver approximately $70 million to $80 million in annualized savings as a result, we incurred $63 million in aggregate charges, including the separate early retirement benefit offered to qualifying U S employees throughout our history Brown Forman is continually evolved and adapted over the decades and we believe these strategic initiatives will ensure the company continues to endure for.
Speaker Change: For generations to come I want to thank all of our employees for their resilience as well as their continued commitment to our brands our business and most importantly to each other in summary fiscal 2025 was a year. Unlike any other that I've seen in the past three decades I'm often reminded that this great company has existed for more than a century and a half and has faced many.
Speaker Change: Uncertainties and unknowns. During these times, we remain focused on the long term and leverage our greatest strengths our people and our brands. This has enabled us to deliver positive organic net sales and operating income growth in fiscal 'twenty five which we believe is at the top of our industry as Leigh Anne will share we're entering fiscal 'twenty six with a healthy mix of real.
Speaker Change: And optimism because we anticipate that the year ahead, we will continue to be challenging despite headwinds. We believe that we have tremendous opportunities for long term growth and while we cannot control the external environment. We will focus on what is within our control and on the strategic initiatives that will unlock growth for our business our brands and our people with that I'll turn the call over to Leann and <unk>.
Leann: I'll provide more details on our fiscal 'twenty five results.
Leann: Thank you Austin and good morning, everyone as loss I'm, not sure and I will provide additional details on the other two pillars of our corporate strategy geographies and investment along with other financial highlights and our fiscal 2026 outlook from a geographic perspective, we shared with you previously that we anticipated a return to growth.
Leann: Organic net sales and organic operating income in fiscal 2020, driven that go out in international markets, along with the benefit Abnormalize on distributor inventory trends on a year over year basis. Today. The results. We are sharing with you reflect those expectations our emerging international markets continue to lead <unk>.
Leann: And collectively delivered a 9% organic net sales increase in fiscal 2025. This growth was led by continued strong double digit growth in Turkey, and Brazil led by Jack Daniel's, Tennessee whiskey that sustained growth of the premium whiskey category positively impacted our business in these markets allow.
Leann: With Brazil, which benefited from our geographic expansion strategy and the launch of an additional package SaaS for Jack Daniels, Tennessee Whiskey in Mexico organic net sales grew 4% despite the challenging economic environment, while discretionary spending has been negatively impacted and consumers are trading down.
Leann: And the Jack Daniel's family of brands are outperforming competitors and gaining market share.
Leann: We will also measure Nymex continued to deliver double digit organic net sales growth driven by increased distribution as well as a steady pricing and promotional strategy Jack Daniel's RTD, which include Jack and Coke outperform the RTD category and delivered high single digit organic net sales growth as I mentioned last call.
Leann: We are committed to the development and growth of our portfolio of brands in Mexico, and further leveraged our own distribution capabilities in fiscal 2025, we began the distribution of brands within the William Grant and turns portfolio, including Citic Hendrix, Lavine and monkey shelter this distribution opera.
Leann: <unk> not only provided incremental organic net sales. We also believe this complementary portfolio provides us additional strength to achieve greater development of the combined portfolio, particularly in the on trade in the Super premium segment.
Leann: <unk> net sales in the travel retail channel declined by 5% in fiscal 2025 challenging macroeconomics in many markets in Asia more than offset the introduction of new brands and growth in global accounts growth of diplomatic and literacy reserve led by the launch of double double.
Leann: More than offset by the decline of our Super premium American whiskey, such as our exclusive global travel retail offerings, Jack Daniel's bottled in bond and Jack Daniel's American single months, which compared against launch in fiscal 2024, our developed international markets collectively delivered an organic net sales decline of three.
Leann: Person in fiscal 2025 as growth in Japan was more than offset by declines in Italy, South Korea, and the United Kingdom, and Japan organic net sales growth was driven by our route to consumer change to own distribution on April <unk> 2020 for that transition to owned distribution enabled us to execute our pricing.
Leann: <unk> and provided more clarity on customer and consumer performance similar to Mexico. We are also leveraging our distribution capabilities with the distribution of the William Grant and sons portfolio of brands, such as Glenn Fenech Monkey shelter Grant and Hendrix.
Leann: Together, our iconic spirits portfolio, we are scaling our business in Japan, and reinforcing our position with local customers, which further strengthens our position and underscores our commitment to long term growth and innovation and the third largest whiskey market in the world. We are excited that we launched our own distribution in Italy on May <unk>.
Leann: <unk> 2025, signifying our dedication to unlocking the full potential of the dynamic Italian spirits market, while organic net sales declined as we prepare for the transition to our own distribution takeaway trends improved and we are gaining market share. We believe owning our distribution will enable us to deepen our collaboration.
Leann: A ratio with our trade partners accelerate growth for key Super premium brands like diplomatic go round and Jean Marie and further strengthen the presence of our iconic American whiskey portfolio led by the Jack Daniel's family of brands and South Korea. The premium whiskey category continued to grow leading to an increase in competitive activity.
Leann: Jack Daniels, Tennessee, Whiskey faced a difficult comparison, and Jack Daniel's, Tennessee, Apple compared against its launch in the prior year period consumer confidence in the United Kingdom was negatively impacted by the macroeconomic and geopolitical uncertainty, particularly related to tariffs, resulting in a 6% decline in organic net.
Leann: Sales double digit organic net sales growth of Depomed Echo and gentleman Jack was more than offset by the decline of Jack Daniel's, Tennessee Whiskey, Although the brand grew in value and gained share in the off premise takeaway trends turning to the United States organic net sales decreased 2% with growth from Woodford reserve old for us.
Leann: And Jack Daniels RTD is more than offset by declines from Jack Daniel's, Tennessee, Whiskey, and Corbell, California Champagne from a takeaway perspective, three months rolling value trends for total distilled spirits are down approximately 3%, reflecting the continued macroeconomic and geopolitical uncertainties negatively.
Leann: Impacting consumer confidence and spending the slowdown is widespread across categories and price tiers get the higher price tiers are continuing to gain market share, particularly in the $40 and above tier within the U S. Whiskey category Lawson highlighted the growth drivers of Woodford reserve. So I will share a few comments on old forester and the.
Leann: Jack Daniel's RTD is along with Jack Daniels, Tennessee, Whiskey and corbell, despite the challenging macroeconomic conditions, our founding brand old Forester continues to resonate with consumers with high quality and great tasting Burbank, and 155 years of history and storytelling old Forester delivered high single digit organic.
Leann: <unk> net sales growth led by strong performance of the superpremium expressions, particularly our single barrel selection offering which is bottled at Beryl strength, Jack Daniel's RTD delivered double digit organic net sales growth in fiscal 2025 led by the growth of Jack and Coke and Jack and Coke zero flavor and pack innovation.
Leann: Are important in the RTD category to provide consumers with a flavor and pack innovations. They desire the limited time offering of Jack and Coke Cherry and the Jack and Coke variety pack, featuring Jack and Coke Jacqueline Ko Cherry and Jack can cause vanilla was launched in March and Tom for the seasonally stronger spring and summer months.
Leann: And it's off to a good start while trends in the second half were stronger than the first half organic net sales declined for Jack Daniel's, Tennessee Whiskey as Austin mentioned, we have taken action and are continuing to engage with current and new consumers through sponsorships on premise engagement, our new media campaign and innovation take seller.
Leann: Great. Our trends, we also continue to make purposeful efforts to highlight our whiskey, making craftsmanship and credentials through innovation and specialty launches the latest release and the H series, Jack Daniel's 14 year old, Tennessee Whiskey joined Jack Daniel's 10 year old and 12 year old, Tennessee Whiskey in fiscal 2025 14 year.
Leann: <unk> is the oldest age stated whiskey from the Jack Daniels distillery in over a century and sold out at the Jack Daniel's White rabbit bottle shop in less than three hours. The success of these products created a halo for the parent brand with the launch generating 720 million earned media impressions benefiting the entire JAK.
Leann: Daniel's family of brands, and finally, Corabelle organic net sales decline in fiscal 2025, and a difficult environment as the majority of the brands in the sparkling category experienced decreased sales turning to the distributor inventory levels in the U S. The environment remains unchanged with distributors continuing to target the low.
Leann: End of their normal range as you may recall in our last earnings call. We shared the news of our distributor transition in California and that it was part of a broader review of our route to market across the U S to ensure our brands are well positioned to win in the highly competitive marketplace. We have now completed our review and we announced that.
Leann: Last week that we have named new distributors for 13 additional markets a transition that will involve seven new distributor partners. Beginning August one 2025. This is the company's first significant change to our U S route to consumer landscape and more than 60 years. These carefully considered decision underscore our ends.
Leann: <unk> commitment to ensure our brands have the dedication focus and investment in route to market capabilities needed to succeed in the increasingly dynamic U S beverage alcohol industry. Just as one example, as a result of these changes we will gain incremental dedicated head count focused on our brands while there.
Leann: This transition will likely cause some disruption and volatility in the first half of this fiscal year. We believe they will unlock future growth. These decisions were taken with great thought and care and we believe they will bring tremendous opportunity for growth in the years and decades to come we would like to recognize and thank all of our distributors his.
Leann: <unk> and expertise over the years had been foundational to establishing brown forman strong presence across the U S. Their dedication and hard work have been instrumental in building a strong foundation upon which this next chapter of growth will be built moving on to the rest of the P&L in fiscal 2025, our reported and organic.
Leann: Gross profit decreased 7% and 2% respectively. This resulted in a 150 basis points of gross margin contraction to 58, 9%. We continued to benefit from favorable price mix, the Jack Daniel's country cocktail business model change and the positive impact from our portfolio evolution, which.
Leann: <unk> had been obscured by the transition services agreements related to Finlandia and Sonoma Cutrer. These benefits were more than offset by higher costs and the negative impact of foreign exchange as we shared in our outlook, we expect that higher cost in the fiscal year due to the impact of inflation on our input costs and lower production levels.
Leann: We work to return our finished goods inventories to more normal levels operating expenses in fiscal 2025 were lower compared to fiscal 2024, largely due to a 6% decrease in organic advertising expense, particularly for Jack Daniel's, Tennessee, Whiskey, and Jack Daniel's, Tennessee, Apple as well as.
Leann: The comparison against the launch of the Jack Daniel's and Coca Cola RGD in the United States in the year ago period. This largely reflects our advertising philosophy of aligning brand investment with depletion based topline trends and a 5% decrease in organic SG&A investment led by lower compensation and.
Leann: And benefits expense in total, including the restructuring and other charges that Lawson shared reported operating income decreased 22% largely driven by the divestitures of Finlandia Ensenada <unk> in the prior year period organic operating income grew 3% in fiscal 2025. In addition.
Leann: We received cash of $350 million in exchange for our 21, 4% ownership interest in that corn and recognized a $78 million gain on the sale of our investment in dock arm in summary, the above results collectively led to a 14% diluted earnings per share decreased to $1.
Leann: 84 <unk>.
Leann: Before moving to our fiscal 2026 outlook I will share a few comments about our fiscal 2025 capital deployment actions, our capital deployment philosophy balances ongoing investment in the business, including organic investments and acquisitions alongside shareholder returns such as regular dividends share repurchases and special.
Leann: Evidence, we approach capital allocation decisions with the core objective of sustainable long term value creation and important aspect of this philosophy is to maintain flexibility and the strength of our balance sheet in fiscal 2025, we continue to maintain our strong financial position, we increased our quarterly dividend for calendar year 2020.
Leann: Five and paid quarterly dividends totaling $420 million to stockholders in the fiscal year. We also repaid $300 million of long term notes at the maturity date of April 15, 2025, now turning to our fiscal 2026 outlook. We believe the operating environment will remain volatile.
And visibility low due to geopolitical uncertainties and global macroeconomic conditions, particularly with regard to the tariff environment. This environment will create sustained levels of consumer uncertainty, which we believe will lead to another year of below historical total distilled spirits trends, we continue to expect that the behavior of the.
Leann: The consumer and the level of trade inventories will not change meaningfully during the 2026 fiscal year, we believe that the strength of our portfolio the benefits of our route to consumer transitions and our evolve to workforce structure as well as strategic innovation will help us to navigate the short term cyclical disruptions from.
Leann: Geographic perspective, we have now moved beyond the unusual comparisons over the past several years and expect the depletion based trends in the U S and developed international markets to remain similar to fiscal 2025 with the exception of Canada, where American spirit products largely remain off the shelf, partially offset by kantar.
Leann: Growth in our emerging markets. In addition, while we are working towards a smooth transition. We do expect some level of phasing disruption in the U S. As we move to new distributors. Another cyclical driver of our fiscal 2026 outlook as the year over year change in our used barrel sales, which was a key contributor to our fiscal 'twenty two.
Leann: <unk> growth, we expect our used barrel sales will return to levels that are more typical in challenging and uncertain operating environment for our industry, which is approximately more than half of the fiscal 2025 level, making it a significant year over year headwind, we will continue to execute our long term pricing strategy.
Leann: <unk> and expect to benefit from our revenue growth management activities and strategic innovation, while anticipating product mix headwinds due to faster growth of our RTD portfolio and agency brands based on the currently known factors, we expect a low single digit decline in organic net sales in this challenging environment, we will carefully manage.
Leann: Our cost and operating expenses our outlook for organic operating expenses continues to reflect the investment behind our brands utilizing our long term brand expense philosophy due to the strategic initiatives implemented in fiscal 2025, we expect a reduction in SG&A related to our recently announced strategic workforce initial.
Leann: Based off the above we forecast organic operating income to decline in the low single digit range, our organic net sales and organic operating income outlook ranges are based on numerous scenarios with the greatest influence from weaker or stronger consumer demand in key markets such as the United States changes in distributor.
Leann: Inventory levels and currently known tariffs, we will continue to monitor adjust and update if conditions are trends of ball, we expect our estimated capital expenditure outlook to be in the range of $125 million to $135 million. We believe our fiscal 2026 effective tax rate will be in the range of them.
Leann: Approximately 21% to 23% in summary, we delivered organic net sales and organic operating income growth and an uncertain and volatile operating environment in fiscal 2025, largely in line with our expectations. Despite the challenging short term conditions, we remain focused on building our business for the long term while NAV.
Leann: <unk> the current environment at pace by strengthening our portfolio of brands for the long term and introducing strategic innovation benefiting from our streamline and simplify the work force structure, which will increase our agility in responding to this dynamic operating environment and taking greater control of our brands in international markets through our own distribution.
Leann: <unk> as recently demonstrated in Japan, and Italy, while ensuring in our largest and home market the United States that our brands are well positioned to win with highly focused and engaged partners in an increasingly competitive environment. We anticipate these strategic initiatives will have short term impacts on our business as we transition to new.
Leann: Partners and ways of working yet we believe they will unlock future growth and continue to build brown Forman and our brands for decades and generations to come. This concludes our prepared remarks. Please open the line for questions.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced and to withdraw. Your question. Please press star one again.
Operator: And the first question is going to come from Bryan Spillane with Bank of America. Your line is open.
Bryan Spillane: Terrific. Thanks, Thanks, operator, and good morning, good morning, everyone.
Operator: Lawson.
Operator: Just stepping back and.
Operator: And I appreciate the commentary about just how volatile.
Operator: And difficult I guess, the consumer environment is.
Operator: One thing we're trying to square here.
Operator: Is is how it's not.
Operator: Uniform across all other consumer categories.
Operator: If we look at.
Operator: I don't know lodging gaming.
Operator: Leisure I mean, theres a lot of other consumer categories that.
Operator: When we go through the transcripts are we listen to the Companys describe the consumer it's kind of a normal if not even a little bit better than normal and yet.
Operator: If I take the commentary today.
Operator: You would think we were in a recession right. So can you just kind of a is that your.
Operator: <unk> as you're kind of looking at the consumer and trying to understand what's happening.
Operator: Specifically to brown forman into spirits and.
Operator: And any insight you can give us to help square that circle, because I think part of the reason why the stock is.
Operator: Kind of a race over 10 years' worth of appreciation.
Operator: Is it simply because I think people are seeing it more structural than cyclical so any insight there would be helpful. Thank you Brian.
Operator: Good question a difficult one.
Operator: It is certainly a lot of consumer categories that are very weak you're right. You cited a few that have done better than others I know some big consumer products companies. The last couple of days have released earnings.
Operator: They've gotten hammered with weaker consumer demand so.
Operator: There is certainly an element to that and a lot of what we've been saying the whole structural versus cyclical argument, which we've been talking about for.
Operator: Six quarters now I think something like that I mean, I don't think theres, a lot of new less newness to necessarily add to that conversation.
Operator: Yes.
Operator: I've seen more and more people, but it's the same big three the GOP line for candidates and Gen Z and we've been saying that for a year and a half now.
Operator: And I know on the sell side that the world seems to be a little bit split on the.
Operator: The extent of the pressure that it's putting on our category we.
Operator: We'd be naive if we didn't say that there is some pressure coming from those but I still would argue that it is it is it is the consumer and their wallet just doesn't have as much money in it you are right. They are spending money on things like vacations and lodging as you said.
Operator: And other things like that but then when it trickles down and they go to the grocery store I think in some cases spirits has fallen out of the basket a little better.
Operator: That is obviously great.
Operator: On the tailwind side of things there are some things that are doing well.
Operator: Spirit's continues to take share from beer and wine so that dynamic hasnt changed premium <unk> done at the same rate it was but its kind of stagnant a little bit but I think.
Operator: That is good news for the most part I think the consumers haven't they haven't traded down necessarily.
Operator: While these days.
Operator: Much more on the premium side of things so.
Operator: I don't think Theres, a lot of new news that I can add to that conversation.
Operator: In.
Operator: We continue to pull the levers that we can pull and you are seeing a bit of a global slowdown or the other thing, which I didn't mention on the structural cyclical thing.
Operator: That we haven't talked about it a little while but I do think when we look at Europe compared to the United States Europe, Although some green shoots maybe in some big markets over there, but Europe has largely been seeing trends.
Operator: Really the same as the United States, if they don't have to cannabis tissue. The GOP ones are not nearly as big.
Operator: Healthy lifestyle, the other owner Gen Z.
Operator: I think anecdotally everybody is seeing that out there and everybody is commenting on that but the factors that are affecting.
Operator: The World is really to me still sound a whole lot more cyclical than they do structural.
Operator: Alright, thanks losses, if we learn more I'll share with you, but it is.
Operator: Flex by it.
Operator: Neil.
Operator: Alright, Thanks, guys I'll pass.
Operator: Okay. Thanks, Brian.
Speaker Change: And our next question will come from Nadine <unk> with Bernstein. Your line is open.
Nadine: Thank you for taking my question I have two one on the guidance and one longer term.
Nadine: First one on the guidance can you flush out a little bit what's included in that topline guidance for fiscal 2006, both in terms of distributor inventories and and or underlying consumer demand are you assuming some improvement in the back half or simply more of the same and similarly on the profit guide.
Operator: Just clarifying what does that imply tariffs did that status quo are you baking in any form of tariff assumption in there. So that's the sort of tariff question and then the longer term question is your fiscal 'twenty six guidance now obviously quite far off the medium term growth algorithm that you have.
Operator: Indicated.
Operator: Last Investor day.
Operator: And I think if we reflect on what's going on with the stock today, that's probably a big portion of that is that growth being.
Operator: At least for the moment pushed into the future.
Operator: Those who are listening in who are concerned about that and reaching that medium term growth algorithm.
Operator: <unk> previously had that algo changed how are you thinking of the <unk>.
Operator: So for the business to grow in the long term.
Operator: Sure.
Operator: Nadine Thanks for your questions I'll start with guidance and I'll turn it over to let's say for our longer term algorithm, so kind of stepping back a bit as we think about F. 'twenty five largely in line with our expectations, we had some sequential improvement.
Operator: Each of the first three quarters and then in the fourth quarter. We had planned for that trend to continue but then that's where we got into more geopolitical volatility around the tariff environment. We saw a drop in the consumer confidence and that's on top of that kind of stretch consumer we've been talking about for several quarters.
Operator: When we think about our fourth quarter and then how that leads into F. 'twenty six so that impacted the U S and a lot of our key developed markets, particularly in Europe for our performance.
Operator: In the fourth quarter I was kind of largely in line with the softening trends of Tds. So that's how we enter our fiscal 'twenty six and so from an environment perspective, we do think it is going to remain volatile and the visibility is going to continue to be low.
Operator: Around the tariff environment that is a big piece of that we believe that through all of that continued kind of uncertainty that the consumers can have it remain at that sustained level that it is now and so we're just really thinking about the behavior of the consumer and the level of trade inventories as we're thinking about them.
Operator: Environment that will be operating in fiscal 2026 is kind of largely the same as we entered into this.
Operator: This fiscal year, but we have a lot going on as we talked about as it relates to our.
Operator: Outlet because again during his prepared remarks, we are really investing in strengthening the portfolio of the brands and he mentioned about those where we're introducing strategic innovation of Jack Daniel's Blackberry, which we think is going to resonate well with consumers worldwide.
Operator: To continue to benefit from our recent route to consumers with Japan, and Italy, and then also our streamlined.
Operator: Organization, which can be highly agile in this environment, we talked about today on our call for us one of them.
Operator: We expect kind of mostly developed markets to remain the same.
Operator: For American products off the shelf in Canada, Canada, and that being about a point of our topline growth.
Operator: Our F 'twenty four 'twenty five.
Operator: We're continuing to assume that our products largely remain off the shelf in Canada and then our growth is going to continue to come from emerging markets again for F. 'twenty six.
Operator: So to your comment on tariffs.
Operator: As we kind of said in our last call. We know it is highly volatile none of us can predict what's going on what we have included in our guide is what we do know as of this date.
Operator: Largely that's coming through as the indirect impact from Canada, but then also the direct impact on some of our cost of goods and that's built into our guide.
Operator: And we talked about the disruption that we do expect.
Operator: For 14 distributor transitions in key markets in the United States. We are all working hard to make sure that goes seamlessly, but with that number of changes. We've just got to plan for some level of disruption and then one thing I'd really like to touch on a bit more that's in that guide.
Operator: It is our used barrels so we know that there's been an increasing global demand for whiskey over the last.
Operator: Number of years and that has created strong demand or our once use American white oak barrels.
Operator: Kind of look back over the last 15 years.
Operator: The challenging operating environment, such as 2010 with economic recession, and with the global pandemic, our used barrel sales typically come stepped down.
Operator: During environments like that and then in the following years kind of returned to more normal buying patterns, so being in the environment that we're in as an industry.
Operator: We would expect.
Operator: In F 'twenty six to that to step down more than half and just so to help you all with debt and F. 'twenty four 10-K, we said that our branded and non bulk was about $87 million.
Operator: And as in our press release, we said for F. 'twenty five on schedule B. It grew 18% and then we've just shared with you that in our guide we think that's more than half now another thing to take into consideration and it's to your point on leverage the used barrels are at the gross margin well.
Operator: Above the company average so as we see this short term cyclical kind of <unk>.
Operator: Opening of demand for that for the use of barrels.
Operator: As it flows down through to the P&L. We just it just has a greater impact an outsized impact on our operating income so with that I'll turn it over to Lawson for the make it.
Lawson Whiting: For the long term.
Lawson Whiting: Algorithms, so just to remind everyone sort of what that was or what we said in our last Investor conference was sort of mid single digit growth in the United States is growing around the Tds number, which historically have been in that four to five range a little bit higher on developed international and a little bit better than that on emerging markets when we get to there.
Speaker Change: Sure that makes all of that work and we.
Lawson Whiting: We had literally achieve that for the most part over the last 22030 years kind of timeframe.
Lawson Whiting: Obviously, the last few years have been a whole lot more volatile than that so.
Lawson Whiting: <unk> said that.
Lawson Whiting: When we.
Lawson Whiting: Talked about that kind of algorithm. If you remember if you go back two years ago Tds and the U S was growing five or six even two years ago.
Lawson Whiting: Long term, we've always said kind of a four to five grower market well right now it's declining at four five so that algorithm doesn't work when the market is declining at that kind of rate. So when we're going to return to growth algorithm I do think has a lot to do with not only the U S. But in Europe, starting to see some improved industry.
Lawson Whiting: <unk>.
Lawson Whiting: I think thats true across the whole industry and we are obviously not the only ones that are not delivering against that long term algorithm, but.
Lawson Whiting: If you are a believer in the cyclical nature of so many of the problems here.
Lawson Whiting: It's tough to predict when that's going to come back but it will.
Lawson Whiting: Look at the fourth quarter had some weakness in it a little bit Tds weakened.
Lawson Whiting: Or two more so.
Lawson Whiting: Contributing to sort of a little bit of a surprise and I think that everybody is seeing right now, but we still feel like.
Lawson Whiting: We are pulling the right levers that we've got the right brands in the right categories, all that kind of stuff Hasnt changed is just the environment continues to be really difficult.
Lawson Whiting: Okay.
Speaker Change: Question Okay.
Speaker Change: Our next question will come from Kevin Grundy with BNP. Your line is open.
Kevin Grundy: Hey, good morning, everyone. Thanks for the question two strategic ones for me if we could.
Speaker Change: So Boston.
Speaker Change: These competitor here as the new CFO comes from the Coke system, there's been great progress on the soft drink side.
Speaker Change: From a mix perspective from a package mix perspective, and it seems like that may be something that a key competitor is intent on pursuing.
Speaker Change: As the way not just to drive profits, but also reaching more value oriented consumer.
Speaker Change: The dry type movement and I was just curious to kind of get your thoughts on that and then just.
Speaker Change: Unrelated Lee just on the pricing outlook here. If you could just comment you guys have heard this before just in terms of.
Speaker Change: The amount of supply that's out there.
Speaker Change: The us whiskey, coupled with the fact that demand is slowing which is now reflected in your outlook and the worry among the investment community is what that May mean for industry pricing and then extensively margin. So maybe just your updated thoughts on those two things would be appreciate it. Thank you for that.
Speaker Change: Alright, thank you.
Speaker Change: Pricing question first and then we'll come back into the RTD.
Speaker Change: Pricing look what we have said before and we are still seeing today is low single digit on a regular basis is the pricing that we want to see out of Brown Forman.
Speaker Change: Sure.
Speaker Change: We're always talking about the U S, but come back to the U S pricing for a second.
Speaker Change: I know over the last 13 weeks Tds was down one point, we were down less than that.
Speaker Change: So that's not great, but not it's not like the bottom is falling out and you get some mixed things in there too is our Tds had been strong but.
Speaker Change: Importantly, though I think initially part of that is with U S. Whiskey suburbans for the most part are Tennessee whiskey.
Speaker Change: Is basically flat so for those that have expressed concern over the last few calls we've had conversations around industry supply and things like that.
Speaker Change: At least so far it has not flowed through to more promotional.
Speaker Change: Lower pricing and so and I think and what we said last time and I would just say it again the big players in American Whiskey.
Speaker Change: Controller.
Speaker Change: Large market share of the American whiskey category and it's the big players the <unk> and Brown Forman and SaaS <unk>.
Speaker Change: And they seem to be.
Speaker Change: Professional on the pricing of whatever the word really wants to be rational I guess, that's a better word for it.
Speaker Change: But they are being rational in their pricing environment to keel as the other category that everybody wants to talk about it's down 2%.
Speaker Change: Once again, it's not like the bottom is falling out, but I think we all accepted that youre going to see some pressure on tequila pricing, giving given.
Speaker Change: The direction of the cost of agave so but.
Speaker Change: I don't want say pleasantly surprised but I guess I am a little bit that the pricing environment has stayed where it is.
Lawson Whiting: And then I would say to the RTD comment that you were referring to you know we've been in this business for over 30 plus years, we have over it has 30 million cases of RTD is already in our portfolio, but you would have heard in loss in his prepared comments, it's something.
Lawson Whiting: We continue to very much believe in.
Speaker Change: New mix, which is one of our key drivers of growth in Mexico, we've been able to take pricing, we have been expanding our distribution and through innovation, we have been launching new flavors.
Speaker Change: For the in F. 'twenty six we're also going to take new mix and extend it beyond Mexico and launch it into the U S.
Speaker Change: Targeted specifically to some areas as we begin to launch to give it good footing as we go forward. We think it will continue to resonate well with a lot of consumers and then also for Jack and Coke is about geographic expansion in F 'twenty six and working through it.
Speaker Change: And launching new innovation in that space, you would have seen us do that in F. 'twenty thought with a variety pack, which we had Jack agco, Jack and Coke Cherry and Jack and Coke Vanilla.
Speaker Change: And it's just a space, where we continue to innovate and grow so we agree the consumer right now in many places around the world is.
Speaker Change: <unk> convenience and flavor and this is a good format to be able to deliver that to them.
Speaker Change: One thing I'll add to that too on the comment earlier about packaging sizing and things like that.
Speaker Change: Quite honestly, it's a little bit easier in the non alcoholic space, so theres more flexibility than theirs and ours.
Speaker Change: Just as one stat I found it interesting I have not heard this before 80% is in Nielsen in the U S. Last 12, 12 months, 80% of the dollar growth in spirits has been through the $3 75, and the 50 ml.
Speaker Change: So the small sizes.
Speaker Change: That's unusual to say the least.
Speaker Change: I think it just it goes further to talk about cyclical challenges of a consumer who's pinched and just goes to the store with a $10 bill instead of 'twenty and then they get the smaller size, but.
Speaker Change: We don't necessarily consider that a bad thing and that came up a couple of calls ago, maybe for some folks it means they still once your brand.
Speaker Change: Just can't afford the hole, we can't afford a leader or whatever it might be and so they're taking a smaller size. So I think that.
Speaker Change: As a sign.
Speaker Change: Call it an opportunity to if we need to get better at getting our small sizes out there and everyone, particularly in the U S is very aware of that.
Speaker Change: Theyre going forward and.
Speaker Change: One small data point about the consumer in the U S well, our coupons are small tool on our promotional tool kit.
Speaker Change: <unk> consists and have the same consistent level on F. 'twenty for F. 'twenty Fathom coupons offered we are seeing redemption rates.
Speaker Change: So again looking at that consumer who is looking for the value and be able to afford the luxury they can while remaining brand loyal.
Speaker Change: And one if I can.
Speaker Change: <unk> question from five minutes ago I wanted to add one other point I think it's important that I forgot to say.
Speaker Change: And it's basically despite what's happened over the last 12 months and a bit of the volatility and the challenges and the slowdown in the business, our three year or five year in our 10 year CAGR for topline growth is the same number and it's all in the mid single digits. So the <unk>.
Speaker Change: Three are in the tenure or the same number it doesn't feel that way right now because because of what's happened really in the last 12 months, but it's coming off those elevated years post COVID-19, but.
Speaker Change: But I just find that interesting to three five and 10 would all be the same.
Speaker Change: And the next question is going to come from Lauren Lieberman with Barclays. Your line is open.
Lauren Lieberman: Great. Thanks, good morning.
Speaker Change: Lawson just following on the heels of that and looking at those sort of average growth rates over a multiyear period.
Speaker Change: Obviously like by nature of the mountain.
Speaker Change: Smoothing inherent in that but.
Speaker Change: Your line is less than encouraging.
Speaker Change: Notwithstanding everything you've already offered on views of cyclical versus structural.
Speaker Change: What about the what ifs.
Speaker Change: What is it is more structural what is the category lifts atvs rather than being down four to five.
Speaker Change: We reached a new level and it's kind of like it's more like beer, so let's call it down well.
Speaker Change: But let's just think of arguments say, it's a download single digit what does that mean, what's the business planning whats the.
Speaker Change: Whats the break glass in case of emergency plan. If there is one but just to what degree are you guys. Having these conversations about what is the future of business model, it's not cyclical.
Speaker Change: Well, yes look I mean, thats, a tough question and we certainly talk about it although I would still argue I think.
Speaker Change: We still still believe in the cyclical side of the argument, but try to answer your question a little bit as to what we do differently.
Speaker Change: Look you take a page out of carbonated beverages sodas, you take a page out of beer or some of those things youre doing more pricing.
Speaker Change: If the volume is not there and they still deliver I mean, both both beer and carbonated beverages is obviously lived on pricing for the last.
Speaker Change: Really so I think theres some changes there I mean I think there is some resource reallocation, we're not seeing these.
Speaker Change: These these headwinds in much of our emerging markets and they continue to grow they continue to.
Speaker Change: Be the source of strength for our company and Theres, a long way to go in the water of emerging markets. As we've said many many times we've barely scratched. It. So I think the where the growth comes from is going to be a little bit different too.
Speaker Change: And then we look at our portfolio I mean, I still we are.
Speaker Change: As everyone knows we are a premium based spirits company premium consumers I do believe we're going to continue to be they're going to want brands like the ones that we have and so I think we are relatively underexposed compared to some others that have a bigger longer tail and a lower price portfolio and just to build on that a bit like with the U S.
Speaker Change: That we just did it was all about making sure that their.
Speaker Change: Bran that we have in a competitive market.
Speaker Change: Or with partners that have proven track record strong capabilities and a shared commitment to make sure theyre going to continue to grow our brands.
Speaker Change: They have ensured we are going to have dedication focus investment and building our brands. We continue to do that in other markets such as the UAE, where we are expanding our distribution and Turkey, where we have new distributors that will cover more geography to losses.
Speaker Change: Emerging international we're doing it with Italy, and Japan, and taking those brands into our hands, especially with Jim Murray and diplomatic go where we have a lot of opportunity to continue to grow those brands. So it's that and it's continued to find synergies, where it's available and I hope through the all of the work that we have been.
Speaker Change: <unk> over the last two fiscal years F. 'twenty five and what we have planned for F. 'twenty six we are demonstrating that we are moving at pace with many strategic initiatives and we are being incredibly agile to make sure we're capturing synergies and opportunities.
Robert Moskow: And the next question will come from Robert Moskow with TV Cowen Your line is open.
Speaker Change: Okay.
Robert Moskow: Hi, I was hoping you could comment on a couple of things.
Speaker Change: One is this is a very volatile.
Speaker Change: Global environment.
Speaker Change: And.
Speaker Change: A lot of markets Theres discontent about American brands.
Speaker Change: Have you done any testing of how Youre Jack Daniels brand is perceived in these international markets. If anything's changed and then secondly can you talk about your philosophy on A&P.
Speaker Change: A&P is down 6% in fiscal 'twenty five would you expect it to be down again in fiscal 'twenty six given the.
Speaker Change: The expectation for sales to be down.
Speaker Change: Yeah, well, let me take on the Jack Jacqueline first.
Speaker Change: And.
Speaker Change: We've had this quite literally over my career it has come through.
Speaker Change: Numerous different times when there is a bit of anti American sentiment moving around the world.
Speaker Change: Historically, they've never quote unquote, taking it out on the brand.
Speaker Change: And we've got numerous examples of that back in the days when Russia.
Speaker Change: We're still selling in Russia.
Speaker Change: Don't lose any momentum there with that France is another one where over the years we've had different.
Speaker Change: There have been different anti American sentiment and it didn't really affect the Brandon so.
Speaker Change: And then in terms of how do we measure and are we testing and are those kind of things I mean, that's one thing.
Speaker Change: If I could find one very positive thing to say today. After everything that we're doing is we have made so many changes to the Jack Daniel's communications.
Speaker Change: And consumer touching all those plans have changed quite a bit highlighted by the new advertising campaign, which has only been out for a few weeks, so youre not going to see anything in the data yet, but we are seeing meaningful improvement in the brand health measures.
Speaker Change: Probably nothing more important over the long term for brown forman than that and so we think we've made some smart moves there and the different different programs that we're running right now and so when we do our consumer testing, we are not seeing anything flow through in terms of.
Speaker Change: Not to brand health, so far so we feel pretty good about that and then from an A&P philosophy Theres really no change in philosophy philosophy. There has just been volatility in that philosophy because.
Speaker Change: We plan our A&P in line with our depletion based expectations and starting with Covid.
Speaker Change: As you've been following our story Depletions and shipments that there have been a gap between those.
Speaker Change: A lot of reasons that we've discussed over many.
Speaker Change: Years, those gaps have now closed.
Speaker Change: So we will continue to plan in line with depletion based growth and over the last and I think it's important to mention that over the last five years, we've increased our brand investment by nearly a $100 million.
Speaker Change: So we believe with the level of investment that we're making in our portfolios is adequate and that also we have to remember for our portfolio of premium plus brands Theyre also supported by.
Speaker Change: Our people, which are coming through SG&A.
Speaker Change: And the next question will come from Phillip <unk> with Citi Your bank.
Speaker Change: Your line is open.
Speaker Change: Hi, good morning, everyone and thanks for taking my question.
Speaker Change: So firstly I wanted to ask about the developed international business.
Speaker Change: Material deceleration in Q4, I get the Canada component of there, but can you expand a little bit more and kind of the European weakness you talked a bit about the U K, but just general weakness that you've seen in other developed markets there.
Speaker Change: And then the second question just a follow up on the guidance.
Speaker Change: I know you guide on an organic basis, just clarify does that include the corabelle.
Speaker Change: Ask it and if not like just give us a sense of how much that should be an incremental headwind to top line and profit. Thank you.
Speaker Change: Yeah I'll take the international question first I mean, we could.
Speaker Change: International markets continue to grow.
Speaker Change: Drive a lot of the growth of our marker for a company I think you all know that Europe has been weaker for quite a while and there. If you go to takeaway trends in Europe, you just look at Spirit's takeaway there.
Speaker Change: They're kind of similar to what Youre seeing in the United States, and so still very difficult markets, they're kind of down in that low to mid single digit range and so.
Speaker Change: We will see how that plays out.
Speaker Change: We continued to take share in many many markets across Europe, and they continue to be an important part of our company and a big part of our company, but as we said earlier I mean, the emerging markets with telco in Latin America, and Mexico. In particular are very strong for Brown Forman and continue to be highlight markets, we've been particularly Brazil, we've been talking about that for a long time.
Speaker Change: And we're seeing pockets of growth in other parts of Asia.
Speaker Change: Other emerging markets and so.
Speaker Change: Sure.
Speaker Change: It's Europe that we need to get turned around and we've made a lot of changes and surround the consumer changes there and expectations are that that will improve over the next over the next year.
Speaker Change: And then from a core bell perspective or from a guidance perspective related to core Bell.
Speaker Change: In our organic results our organic P&L, we will have may and June included in that front.
Speaker Change: From then excluded from that point forward and then from a reported perspective it will exclude.
Speaker Change: Core Bell from May June sorry July 1st forward and Thats, the $94 million on our SNF topline and then about $12 million in operating income on the bottom line that will come out of the reported P&L.
Speaker Change: Due to time this will conclude the Q&A session I would now like to turn the call back over to Sue for closing remarks.
Sue: Thank you and thank you Lawson and Leann and thank you to everyone for joining us today for Brown <unk> fourth quarter and fiscal year 2025 earnings call. If you have any additional questions. Please contact us as we close National Bourbon Day is June 14th if the data recognize the official spirit of the United States and on this day wherever you are we.
Speaker Change: Hope that you will responsibly enjoy a glass of old Forester Woodford reserve with us with that this concludes today's call.
Speaker Change: Thank you. This does conclude today's conference call. Thank you for participating and you may.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.